Contact: Jon Pittam, ext 7400

1 Summary

1.1 The Government has announced its plans for schools funding in 2005/06 and a change in schools funding from 2006/07 to introduce a new dedicated schools budget financed by a specific grant payable to the County Council.

1.2 The proposals are set out in the accompanying report, based on the Department for Education and Skills (DfES) website announcement on 8 July 2004 for the changes from 2006 and an announcement on 13 July 2004 about the funding proposals for 2005/06. The report also covers several other issues affecting 2005/06.

1.3 The following decisions were taken:

· to note the schools funding proposals for 2005/06 and build them into the 2005/06 budget strategy.

· to agree to allocate the inflation contingency for 2004/05 pay awards.

· to consider representations Cabinet wish to make on the school funding changes from 2006/07.

· to ask the County Treasurer to report in September on the implications for the County Council's three year budget forecasts and the future budget strategy, in the light of these various announcements.

· to ask the County Treasurer to make appropriate representation to Government about the significant further erosion of local education authority control inherent in the proposals.

2 Reason(s)

2.1 The dedicated schools budget announcement represents a fundamental change in local democratic and funding arrangements for schools from 2006/07.

2.2 The changes will have a profound effect on all the aims of the corporate strategy, particularly:

· Aim 1 - maximising life opportunities.

· Aim 5 - improving services.

3 Other options considered and rejected.

3.1 Not applicable.

4 Conflicts of interest declared by the decision maker or other Executive member consulted.

4.1 Not applicable.

5 Dispensation granted by the Standards Committee.

5.1 Not applicable.

6 Reason(s) for the matter being dealt with if urgent.

6.1 Not applicable.

Approved by: (signature) Date: (date of decision)

Councillor T K Thornber

Contact: Jon Pittam, ext 7400

With the concurrence of the Chairman under Section 100 (B) (4) (b) of the Local Government Act 1972, this matter was included on the agenda to ensure that the Cabinet gives timely consideration to the Government's current plans for schools funding.

1 Introduction

1.1 The report brings together a number of recent announcements, principally those affecting schools funding for 2005/06 and a further fundamental change in the schools funding system from 2006/07.

1.2 The report covers:

· School funding 2005/06.

· Pay award 2005/06.

· Capping

· Spending review 2004 (which will be the subject of a separate presentation by the County Treasurer at the meeting).

· Dedicated schools budget from 2006/07.

· New trading powers for local authorities.

· Business rates.

· Balance of funding review.

2 School funding 2005/06

2.1 In October 2003 the Secretary of State set out "a package of measures designed to restore confidence in the school funding system and deliver stability in school budgets and predictability for head teachers and governors.". These included:

· minimum per pupil increase in every school's budget.

· additional resource to help every local education authority to support schools with additional pressures.

· the reversal of planned cuts in the Standards Fund.

· targeted transitional support grant to help all schools achieve balanced budgets.

2.2 These measures are thought to have been successful and are planned to be extended to 2005/06, with an even earlier announcement to enable authorities and schools "to plan ahead effectively". The County Education Officer and the County Treasurer continue to participate in the Schools Funding Implementation Group consisting of officials of the DfES, local government representatives and head teachers associations, which discuss the issues in detail.

2.3 The starting point is the 2005/06 Education formula spending share (EFSS), which remains unchanged nationally in Spending Review 2004 (SR2004) with a 5.9% cash increase. However because there is an average 1% fall in pupil numbers, the increases in the Education FSS is around 7% per pupil. No amendment has been made on the split of EFSS between the schools component (SFSS) and the LEA component (LEA FSS). The higher the SFSS, the lower the increase in the LEA FSS. The 2004/05 EFSS underpins the 2005/06 settlement.

2.4 The estimated cost pressures in the average school in 2005/06 are in the range from 3.8% to 4%, but there remain some uncertainties in particular around the cost of local government pensions.

2.5 Consideration has also been given to the costs of the implementation of the national agreement on workforce reform. The main impact is from guaranteed time for planning, preparation and assessment (PPA) in primary schools from 2005/06, estimated to be between 0.8 and 1%. The DfES believes that most secondary and special schools will be able to implement the September 2005 contractual changes from their existing resources.

2.6 For 2005/06 all schools will continue to have a guaranteed minimum funding increase "which is at least equal to the average cost pressures which schools are likely to face". The Secretary of State also believes that "it is important to retain flexibility for LEAs to respond to local circumstances by directing additional resources where they are most needed, especially since the costs of workforce reform will vary significantly between schools depending on their starting point.".

2.7 The minimum guarantee is 4% for secondary schools as in 2004/05; this means that pupil-led elements of schools' budgets will increase by 4% per pupil, and fixed elements by 4% in cash. A secondary school whose pupil numbers stay the same between 2004/05 and 2005/06 will therefore be guaranteed at least a 4% per pupil increase in its overall budget next year, on top of a minimum increase of 4% this year. Secondary schools whose pupil numbers decline will receive an increase of more than 4% per pupil, to help cover their fixed costs. And those whose pupil numbers rise will receive at least a 4% increase in their cash budgets, and an overall per pupil increase of at least 3.9%.

2.8 For primary schools, the minimum guarantee is set higher - at 5% - to take account of the additional costs which these schools face in implementing workforce reform. Primary schools whose pupil numbers remain unchanged will therefore receive at least a 5% per pupil increase, and those with declining numbers will receive more than 5%. Those with rising rolls will receive at least a 5% cash increase in their budgets, and an overall per pupil increase of at least 4.9%. As with 2004/05, special arrangements will apply to schools with 75 pupils or fewer.

2.9 The guarantees for special and nursery schools are 4% and 5% respectively.

2.10 Small primary schools, with fewer than 100 pupils, will get additional support because it is "more difficult for a very small school to secure small proportions of support staff time in order to release teachers for PPA time." Subject to consultation, it is proposed to apply a larger increase to the sparsity unit cost in the primary formula within the SFSS, to direct more resources to authorities with a high proportion of schools in this situation. The increase in the School Standards Grant band for schools with under 100 pupils is also doubled to ensure that all small schools have some extra help with the costs of workforce reform.

2.11 Other specific grants to schools will go up by 4%.

2.12 The average increase in Schools FSS will be around 7% per pupil but the County Council as a floor authority will receive the minimum increase set at 5.5% per pupil (the increase for most authorities will be higher).

2.13 Setting the minimum increase at this level will again ensure that all authorities have some headroom after implementing the guarantee, to allow the local funding formula to operate or to direct additional resources where they are most needed. The provisional increase for each authority will be announced at the time of the local government settlement in late November.

2.14 Next year the Government will again expect each authority to passport in full its SFSS increase into a matching increase in its schools budget, unless there are wholly exceptional circumstances.

2.15 As in 2004/05, it also expects central spending on the Schools Budgets in 2005/06 to rise no faster than spending on schools delegated budgets. LEAs will again be able to seek an exemption where exceptional local circumstances arise - 23 such exemptions (including the County Council) were agreed this year. The view of the Schools Forum will again be important when any applications for exemptions are being considered.

2.16 For 2004/05 a targeted grant, totalling £120m nationally, was allocated to 51 authorities, including the County Council, which would otherwise have had the lowest increase in revenue support for education between 2002/03 and 2004/05. About 50% of this is available to the same authorities in 2005/06. The amount for Hampshire is £3.45m - equivalent to £6,400 per school or £20 per pupil. No further transitional grants will be available from 2006/07. The County Council will need to update its transitional support plan to show how the grant will be targeted to schools in the greatest difficulty to bring their budgets back into balance.

2.17 The degree of continued damping in Government grant for the Schools Budget is an important factor in determining the 2005/06 budget. The current forecast in the forward budget plan, part of the 2004/05 budget, was a 7.3% council tax rise, assuming a 5% cash increase for schools. With a 5.5% floor for schools and updating other assumptions, the council tax rise, before use of reserves and balances, would be a slightly lower figure of 6.8%. The total amount of schools damping in 2004/05 was £19m. This represents the grant still to be lost from schools funding, as the grant formula changes introduced in 2003/04 continue to bite, and the main reason for the grant equalisation reserve. It is estimated that a further £6m of grant loss will occur in 2005/06, leaving £13m still to be lost over time as Hampshire's schools continue to receive the minimum funding increase, some 1.5% per annum below the average increase in schools funding in England.

3 Pay award

3.1 The national pay award has now been agreed. This is a three-year pay deal for 8.9%.

· 2.75% in 2004/05

· 2.95% in 2005/06 and conditional upon the increase in the retail price index another 2.95% in 2006/07

3.2 This helps for future financial planning and it is now possible to release the inflation contingency still held for all services other than schools and Social Services which have had passported cash increases, including provision for all pay awards. 2.5% was included in base budgets, so an additional 0.25% can be allocated now. Social Services retained sufficient in its contingency within its cash limit increase to provide for a pay award of up to 3%.

4 Capping

4.1 Five local authorities and one fire authority have now had budgets capped for 2004/05. One further local authority, four fire authorities and three police authorities will be limited in their budget increases in 2005/06 by having notional budgets set for 2004/05.

5 Spending Review 2004

5.1 This will be subject to a separate presentation at the meeting (item 8).

5.2 The main headlines for local authorities are:

· 5.5% per annum overall increases in FSS, equivalent to 2.7% pa in real terms, but focused on education and children's services with much less for the rest, especially highways maintenance (0.8% pa) and other services (2.6% pa).

· a requirement for efficiency gains totalling £6.45bn by 2007/08, equivalent to 2.5% per annum of which 50% should be in cash savings "releasing resources for front-line services".

· the Government plans to introduce three year revenue and capital settlements for introduction following full consultation from 2006/07

6 Dedicated Schools Budget

6.1 The Government has announced the following changes to schools funding from 2006/07:

· guaranteed three-year budgets for every school, subject to pupil number changes, with every school also guaranteed a minimum per pupil increase every year.

· a new Dedicated Schools Budget: a specific grant from DfES to each local authority, to cover the full cost of delegated budgets for individual schools, and other central services for pupils provided by LEAs, like special education needs and pupil referral.

· funding will continue to be channelled through local authorities, but cannot be diverted to other purposes. "Local authorities will deliver a national guarantee of extra funding to each school each year, but will retain an important and necessary role in deciding the distribution of funding locally, to reflect local needs and circumstances."

· schools' budgets will be aligned to the school year, not the financial year as now, as soon as is practically possible.

Reasons for changes

6.2 The Government's case for change includes:

· "practical financial security and freedom to schools in their forward planning.

· guaranteeing delivery of the Government's commitment to increase spending on schools, in every local authority area.

· providing schools with three-year budgets - allowing and expecting schools to take a strategic approach to their budgets.

· giving schools greater control of their own destinies, building confidence and supporting innovation, creativity and excellence.

· reinforcing predictability and stability in schools' funding.

· making further moves to streamline funding streams for schools.

· ending the annual, energy-sapping, wrangle between central and local government, and within local government, about the quantum of spending on schools, so that local authorities can concentrate fully on their strategic and quality-assurance roles in education."

Role of local government

6.3 The Government says that:

· "there is a new central role for local authorities in children's trusts, and in providing educational leadership and innovation in their local areas, championing the interests of parents and pupils, and promoting local partnership which presents real opportunities for local government.

· local authorities will retain their current responsibilities for important roles, where local coordination is essential, including the development of capital strategies for their areas (including Building Schools for the Future), making sure every child has the best possible school place, school transport and special educational needs (SEN). They will also continue to decide on the distribution of funding between schools in their areas, to reflect local needs and circumstances.

· as part of local arrangements, local authorities will have discretion to "pool" certain elements of their Dedicated Schools Budget.- e.g. special educational needs - into wider budgets under the children's trust."

6.4 The Government says this will ensure the delivery of real funding increases to schools without annual conflicts between central and local government and within councils. It also says that it is important that the change has no adverse effects on the rest of local government.

Next steps

6.5 The next steps are:

· DfES will consult with partners across education and children's services on the practical arrangements for introducing Dedicated Schools Budgets, including transitional protection where local authorities have spent more than their formula allocation in the past; minimum guarantee for schools; and three-year budgets for individual schools. DfES recognise that such a major change requires full and detailed discussions, and the County Education Officer and County Treasurer and their staff will continue to be closely involved.

· the Government will also consult with local government on what transitional measures are needed to ensure there are no adverse effects for the rest of local government.

6.6 Further questions and answers on the Dedicated Schools Budget published by DfES are attached in Appendix 1.

Comparisons with this current system

6.7 The main change is the introduction of this new specific grant and the end of earmarked and passported revenue grant support. Currently schools are funded through a mixture of grant, business rates and council tax. SFSS is £23.359bn. This represents almost 39% of total FSS for all services. According to DfES estimates, local authorities are spending a net £217m more than this total; 107 authorities, including Hampshire, are spending £332m over FSS and 43 are spending £115m under.

6.8 For Hampshire County Council, relevant figures for the Schools Budget in 2004/05 are:

	Total	Spend over SFSS formula
	£m	£m	%
Budget	547.0	22.1	4.2
SFSS with damping adjustment	541.4	16.5	3.1
SFSS formula without damping adjustment	524.9

6.9 In other words Hampshire schools will eventually lose £22.1m (4.2%) of their current funding in real terms because of this change, which incorporates the previous formula changes through revenue support grant.

6.10 DfES says that transitional protection will be provided for authorities which spend over SFSS, no authority will receive less than its current level of spending plus an annual increase taking account of pupil number changes. This will be funded centrally, so authorities will not face additional pressures on the council tax or other services. However, the implication is that in the course of time, schools in those authorities will be less generously funded and their Schools Budget will tend towards their SFSS.

6.11 Authorities spending under SFSS will be moved up in time to the formula funding level. However, DfES say they will consult on the impact on authorities in the Autumn. If funding was taken out at the schools budget level the impact on those authorities would be neutral and their schools would gain in time as they were moved up to SFSS. If funding is taken out at the SFSS level, although there will be no immediate change in funding for schools in an authority, local authorities spending under SFSS will lose funding currently being used to fund services other than schools or to pay for a council tax lower than the Government's assumed level.

6.12 There will not be a national funding formula. Local authorities will still be responsible for the fair funding formula in consultation with the Schools' Forum. But further Government prescription on the rules governing the distribution of funding between schools might be expected.

6.13 Other specific grants direct to schools are expected to be consolidated into a single Standard Grant.

6.14 The funding for the LEA FSS will remain unchanged and will continue to include home to school transport.

Effect on overall local government finance

6.15 The implication of the announcement would be to reduce non ring-fenced funding to authorities by around £23.5bn. Revenue support grant in 2004/05 is £27bn; it would reduce to around £3.5bn. It would not in itself be enough to equalise for needs and resources between authorities and this means that business rates would have to be distributed on an equalising rather than a per head basis. Council tax would pay for less services. Local authorities would retain discretion to top up schools funding through the council tax, subject to the pressures of other services and capping, but would not receive any grant funding for this.

6.16 The amount of grant that is ring-fenced would rise from 11% in 2004/05 to around 53%, not in line with the Government's commitment to reduce this to 10% for 2005/06.

Effect on the balance of funding

6.17 Funding schools 100% by grant would mean that the council tax would pay for a greater proportion of other council services.

6.18 The balance of funding between the council tax and grant would therefore rise for other services, from an average 70:30 in 2004/05 to 50:50, in other words, council tax would pay for around half of the remaining local government services. However, this figure is for all local authorities, not just those which provide education.

6.19 There are many uncertainties and a lot of work still needs to be done to convert these changes into a workable solution. Care will need to be taken to ensure that the County Council's other services and its funding position is not adversely affected. Further consultation on the practical and technical implementations are promised, and the County Council's officers will be closely involved, covering:

· formula/transitional protection for the Dedicated Schools Budget.

· three-year and academic year budgets of schools - how introduced and reconciled to whole of government accounts on a financial year basis, how far absolute fixed cash increases are balanced with changing needs, pupil numbers etc.

· minimum schools guarantee - how quickly losses and gains are effected compared with a narrower floors and ceilings regime around annual cash increases.

· how the Dedicated Schools Budget is allocated within local authorities amongst its schools.

· ensuring no adverse affects for the rest of local government.

· impact upon capital expenditure from revenue, PFI and unsupported borrowing.

· single Standards Grant and its interaction with the current distribution of specific grants, including those not directed at Hampshire schools for example excellence in cities, neighbourhood renewal etc.

6.20 There will also be interaction with other aspects of the Education five-year plan - including the legal and financial status of foundation schools and city academies.

6.21 These changes do not help integrate children's services with schools funding and creating an impression that foundations status would put some schools outside the community responsibilities of local authorities only makes working across agencies even more difficult.

6.22 However, the most fundamental change is the removal of local democratic control over total schools budgets - the County Council's largest and highest priority budget.

6.23 Successful schools will be able to bid for capital funds to expand, with a bias towards successful specialist schools that want to start sixth forms. This will conflict with value for money and efficiency savings targets imposed elsewhere, and will also distort capital strategies and funding.

6.24 The plan will give central Government sole control over total funding and head teachers more autonomy. The consequences of this are that:

· local councils rights appear to be affected and it could have a further debilitating effect on local democracy. Councils will still be fully responsible for under-fives, special needs, home to school transport, and children's services - other more demand led and `difficult' services. Government states that a `strategic' role will be central to the role of the LEA, but it is not yet clear how other constraints may operate.

· greater diversity and autonomy for parents and schools could lead to greater problems for local authorities in dealing with special needs, challenging and excluded pupils, or the problems of funding schools without the resources and powers to intervene effectively.

6.25 SFSS was never intended to measure absolutely the local need to spend on the Schools Budget. Using this as a benchmark and "fossilising" spending at that level is detrimental to Hampshire schools, which will continue to lose funding in real terms (paragraphs 6.8 & 6.9).

6.26 The Cabinet may wish to determine what further consideration and representations, if any, it wishes to make, based on paragraphs 6.20-6.25.

7 New trading powers for local authorities.

7.1 The Government laid an Order before Parliament on 8 July 2004 which will allow local authorities to trade with private bodies and persons for profit through a company structure, provided that authorities are rated as excellent, good or fair in the comprehensive performance assessment.

7.2 This will allow authorities to trade with anyone in their core or statutory functions. Examples could include contract catering and cleaning, refuse disposal and IT services.

7.3 Statutory guidance will be published shortly. The aims are to:

· increase diversity and choice in the delivery of public services.

· give local authorities the tools needed to `build thriving, inclusive and sustainable communities'

7.4 There may be opportunities to use these powers to assist with the efficiency savings required within SR2004 and further reports will be made as appropriate.

8 Business rates

Revaluation

8.1 Business rate bills will be based on new valuations from April 2005. Draft rating lists will be issued earlier than usual on 1 October 2004, with the aim of reducing appeals after revaluations have been effected.

8.2 Revaluations will not increase the amount of tax collected, but will redistribute the tax burden in a more equitable way reflecting current values. Transitional relief for individual business from changes in valuation will continue.

Small business rate relief

8.3 Relief will be given to all properties with a rateable value of under £8,000, provided that it is the only property owned or occupied by the taxpayer, from April 2005.

BIDS

8.4 Business improvement districts schemes (BIDS) are partnerships between the local business community and the local authority to achieve improvements in a particular area - eg better security or street cleanliness. The work is funded by a levy raised from an additional local rate. Pilot projects are expected to start running in early 2005.

LABGI

8.5 Under the Local Authority Business Growth Incentive Scheme (LABGI) councils can retain part of the extra revenue from business rate growth and spend it on their own priorities within their area. Cabinet has considered the outline proposals of this scheme at previous meetings and the Government plans to issue a second consultation paper setting out firm proposals for the scheme to come into effect in April 2005.

9 Balance of funding review

9.1 The Review has sought evidence on four leading options:

· reform of the existing council tax.

· re-localisation of business rates.

· introduction of some form of local income tax.

· range of smaller taxes and changes.

9.2 The County Council responded to consultation requests.

9.3 OPDM has reported that:

· "helpful evidence was given by the New Policy Institute, which showed that there are a number of practical options for reforming council tax that could ease some of the unfairness and pressures within the existing arrangement. These could involve changes to the existing bands, or the ratios between them, or could involve introducing a regional element to reflect differing movements in property prices when council tax is revalued in 2007. (These accord with the County Council's suggestions.)

· it was also very clear to the Review that the role of council tax benefit is absolutely crucial to any future development of the existing council tax. About 1.4m pensioner households who are entitled to this are not actually claiming this particular benefit which would in many cases significantly reduce their liability. If everyone who is entitled to council tax benefit took it up, the tax would actually be a great deal less regressive in its impact than it is currently. (The County Council has already promoted its `take up the benefits' campaign locally).

· on the question of the business rates, there was a clear division of opinion. Local government generally argued that business rates should be re-localised, both to shift the balance of funding and to encourage partnership between local authorities and business. Conversely business argued strongly against this. Some intermediate options were proposed - for example, lifting the current inflation cap which has actually meant that business's contribution to local government revenue has gone down as a proportion of the whole, from around 29% in 1990/91 when the current system was first introduced to around 22% in 2003/04. (The County Council argued for the return of business rates to local control with safeguards on the rate of increase.)

· the Review received evidence from the Chartered Institute of Public Finance and Accountancy on the possibility of a form of local income tax. This is a complex area and CIPFA identified the difficult technical, administrative and policy issues which underlie all the options.

· the LGA presented an analysis of the case for one or more smaller taxes or charges. These could come in the form of localising a national tax such as vehicle excise duty; could involve for example the introduction of a new local tax such as a tourism tax; or it could involve the wider use of charges such as traffic congestion charges. These could provide some useful flexibility to authorities at the margins, and they could offer other policy benefits. They do not make a major contribution to shifting the balance of funding. So they would need to be considered on their own merits."

9.4 The report of the Review to Government is expected to be published before Cabinet meets. The review will not make firm recommendations, but will list the pros and cons of the main options for reform. There will be a "detailed debate on the way forward with the objective of establishing a fair and sustainable local government finance system for the long-term."

9.5 However the introduction of the dedicated schools budget has at a stroke reduced the `gearing' problem with the balance of funding restored to 50:50 when it takes effect in 2006/07. However, it is important to recognise that because of the priority given by the Government to schools funding, that the main spending pressures which have not been adequately recognised in FSS have been on other services. These pressures will continue to have just as much input on council tax levels in future irrespective of the change in gearing. For example, currently £10m of spending pressures represent 1% of the budget requirement and add 2.6% to council tax. In future the same spending pressures might represent 2% of the lower budget requirement and would still add 2.6% to the council tax.

10 Conclusions

10.1 There are a substantial number of changes occurring with:

· schools funding

· SR2004

· business rates and related issues

· balance of funding review

10.2 It is therefore suggested that the County Treasurer should report in September on the implications for the County Council's three-year budget forecasts and future budget strategy, including proposals for budget consultation in the autumn, and for the annual round of budget reviews between the Leader and the Executive members before the local government finance settlement in late November.

10.3 Although some information enables better financial planning, the County Council's actual grant support is the key factor and this will not be available until the late November announcement. But it is clear that the County Council will need to plan to phase in efficiency savings of 2.5% per annum over the next three-year period and the approach to these will be a key component of the September report.

Recommendations

The recommendations are set out in the summary decision sheet.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

Published works.

Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

Contact: Jon Pittam, ext Contact Ext. 7400

1 Introduction

1.1 This report summarises two very recent Government announcements which are relevant to the main report circulated under urgent business. These are:

· the Balance of Funding Report, issued on 20 July 2004 and the Government's announcement of a further, independent inquiry, to be chaired by Sir Michael Lyons, director of Inlogov.

· the office of the Deputy Prime Minister Select Committee report on Local Government Revenue, issued on 16 July 2004.

2 Balance of Funding Review

2.1 The main conclusions drawn in the report are that:

· the balance of funding is a major issue as far as the local government finance system is concerned, notably because of the problem of gearing.

· there is therefore a case for shifting the balance of funding; but measures for achieving this must be looked at on their own merits.

· it is possible to shift the balance of funding towards a higher proportion of local revenue whilst still allowing the system to equalise for higher needs and resources.

· the only way in which this can happen is if a reformed council tax is supplemented by either relocalised business rates, a local income tax, or a combination of both.

2.2 The inquiry will, in the light of Balance of Funding Review report and other developments, such as the Government's intention to ring-fence schools' funding from 2006/07:

· make recommendations on how best to reform council tax, taking into account the revaluation of domestic property due to come into effect in 2007.

· assess the case both for providing local authorities with increased flexibility to raise additional revenue and for making a significant shift in the current balance of funding.

· conduct thorough analysis of options other than council tax for local authorities to raise supplementary revenue, including local income tax, reform of non-domestic rates and other possible local taxes and charges, as well as the possible combination of such options; and

· consider the implications for the financing of possible elected regional assemblies.

2.3 The Lyons Inquiry will take evidence from stakeholders. It is due to report by the end of 2005.

2.4 The Government has accepted the Review's conclusion that council tax should be retained but reformed and noted that Government was working on improving take-up of council tax benefit (CTB).

2.5 The report recognised the merits of a property tax, i.e. its predictability and ease of collection, but acknowledges that it will need reform to address its impact on those on low incomes and the impact of revaluation. Possible reform options include increasing the number of bands and regional or sub-regional banding.

2.6 The report agrees that CTB should be a vital element of the reform package. Revising the savings limit, which has not been changed for almost 15 years, and changing CTB from a means tested benefit to an entitlement are key options for improving take-up and providing an adequate safety net.

3 ODPM Select Committee report on local government revenue

3.1 The report concluded that "councils should be free to determine their own spending.". The conclusions were:

· gearing has a negative impact on local authorities, distorts accountability and makes the funding system less clear.

· Government grant can be reduced significantly and still equalise.

· local authorities should control at least 50% of their own income.

· calling for ring-fencing to be no more than 10%, despite education ring-fencing announcement.

· calling on Government to reconsider use of ring-fencing and passporting, using mechanism like the Central Local Partnership to set minimum standards.

· if Government wish to control education funding it should consider funding education directly.

· reduction in the inspections regime, particularly for good and excellent authorities.

· support of three year rolling programme of grants from ODPM.

· capping should end by end of 2005 and there should be no in year capping.

· council tax should be retained and reformed, with particular attention paid to bands, regional or sub-regional banding, and council tax benefit, which should become a `discount or rebate'.

· local income tax - CIPFA model might work but evidence not persuasive. Detailed research needs doing into cost and impact on tax payers.

· business rates should be returned to local control by no later than April 2006, with a mechanism to prevent excessive increases. Meanwhile they should be allowed to rise by a set amount above inflation.

· doubts about a local sales tax.

· support for local authorities to have access to congestion charging, workplace charging and discretion on smaller taxes on smaller taxes and charges, with support for tourist tax.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

Published works.

Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

None